Omniture

Families, it turns out, are sometimes more reluctant than states to reform boards and professionalize their company's board membership. In a recent McKinsey Quarterly article, "Improving Board Performance in Emerging Markets" (2006 Number 1), the authors argue that effective corporate boards are even more a priority for emerging market companies than they are everywhere else, given the relative weakness of local regulatory and legal systems.

Concentrated ownership on boards, whether by a family or by a state, is one sure way to undermine good governance. According to the McKinsey Quarterly article, family businesses have been slower to reform than some states. The article notes, however, that change is happening as second and third generation owners -- increasingly schooled in global business best practices-- take over management of businesses from their elders and open their boards to professional directors, independent market information, and other necessary elements of sound corporate governance.

As for state reforms in this area, there is the successful example of Singapore's government-owned Temasek holdings company. China and Malaysia are two other countries that have launched highly visible initiatives to improve state company board performance.

Brazil's Novo Mercado stock market is the proof in the pudding: corporate governance sells. The Financial Times reports the Novo Mercado, which IFC helped design and launch, rose by 45 percent in dollar terms in 2005 and shows that “good corporate governance attracts investors.” What explains the rise is neither legislation nor regulation, the article says, but the opportunity for companies to aim high. To list on the Novo Mercado, companies must issue only voting shares, offer 100 percent tag-along rights and maintain a free float of at least 25 percent of shares.

McKinsey Quarterly says in a recent article that some of the challenges faced by corporate boards in emerging markets include high concentration of ownership, lack of experienced directors, and underdeveloped legal regimes.

The IFC-World Bank Corporate Governance Group helps companies and countries improve standards of corporate governance by focusing on shareholder and stakeholder rights, board member duties, disclosure, and effective enforcement. To find out more, click here.